Thursday, August 11, 2011

Volatility Versus Value - Gaming Versus Growth

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Investing, asset allocation, and wealth management have become increasingly problematic, and are the subject of tremendous debate amongst the experts, gurus, advisers and media talking heads. The capital markets, the commodities markets, and all of the other markets where shares, units or interests are traded on an exchange have become as volatile (in amplitude as well as frequency) as they have become unpredictable.

To make wealth preservation and growth a reality, and in order to minimize minute-by-minute frenetic market-watching and the ensuing nail-biting neurosis, the following objectives and considerations should probably be incorporated in your corporate asset management strategy as well as in your personal portfolio management strategy.

This list is not exhaustive or all-inclusive, but it will serve to provide you with some parameters worth thinking about:

1) Diversify internationally, in terms of geography (countries), currency (FOREX) of instrument denomination, physical nature of holdings (certificate, coin, ingot, etcetera) and brokerage houses and/or investment banks.

2) Diversify with respect to whole market-based investments (such as ETFs), and  fundamental choices in individual industry-leader "bulwark" companies which provide products or services of enduring demand.

3) Diversify between equity investments and debt instruments -- the compromise position here is convertible debt or preferred equity with a decent payout history.

4) Consider syndicating or pooling your portfolio with other qualified, accredited, trustworthy and viable investment partners in order to further hedge your risk of loss and to expand your "riskless leverage" over a broader expanse of investment possibilities. This can be achieved through a multitude of investment entities, including, but not limited to LLCs, Joint Ventures and a number of others. Be certain that you are in full compliance with all securities and investment regulations which may apply to your plan of syndication, and to the jurisdictions to which laws you (or the entity) may be subject.

5) Consider buying (either individually or via syndicate) direct participatory interests in private companies or projects where your recoupment of principal will largely be through distributions of cash flow or revenue-based royalties back to you, your firm, or your syndicated entity -- this builds increased liquidity and has a favorable de-leveraging effect on your portfolio. Also, consider buying (usually via syndicate, and with the utilization of a well-constructed voting trust, or its equivalent) strategic interests in public and private companies. By my loose definition, a "strategic interest" is one in which you have access to the investee company's, books, records and checkbook, as well as a significant voting say in the investee company's policies and decisions.

Other than that, there is little to say. In days and weeks to come, I will further elaborate on how to implement and optimally utilize these direct participation and strategic investment interest approaches to stabilize your portfolio, and to grow your wealth despite the vagaries of the capital markets, rating services, government and financial public relations propaganda, and other volatility accelerants and enabling agents.

Consistent planned growth beats wild speculation or incessant "market-watching" in my book.

Douglas E. Castle (at

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